Minority shareholders should be aware that there are means available to them under the Companies Act 2006 to require their company to produce audited accounts.
Under section 476 of the Companies Act 2006, companies are required to have their annual financial accounts audited. There is an important exception to this general rule however, which most small companies rely on. Under the "small companies exemption" a company is not required to have its annual financial accounts audited where, for the relevant financial year:
· The company qualifies as a "small company";
· Its turnover is not more than £6.5 million;
· Its balance sheet total is not more than £3.36 million.
For a company to qualify as a "small company" it must meet at least two or more of the following conditions for the relevant financial year:
· It must have no more than 50 employees
· Its turnover must not be more than £6.5 million
· Its balance sheet total must not be more than £3.36 million
A complaint often raised by minority shareholders is that there is no transparency in relation to the company's financial affairs and that they do not have access to the company's financial records. Minority shareholders can of course view a company's annual financial accounts, but where these accounts are unaudited under the small companies exemption, the information revealed can be of limited use.
Minority shareholders owning 10% or more of a company's share capital can however force a company to produce audited accounts even where that company could normally rely on the small companies exemption. The minority shareholder must give notice to the company within one month of the end of the relevant financial year that an audit is required. The notice may also be given by more than one minority shareholder to make the required 10%, so if A, B and C each hold 4% of a company's share capital, their combined shareholding is at least 10% and they can together serve the appropriate section 476 notice on the company.
The statutory ability of a minority shareholder to require audited accounts can be an important tool where minority shareholders suspect financial mismanagement of a company by the majority. A strategically deployed section 476 notice can assist in bringing the majority shareholders to the negotiating table in shareholder disputes.
For more information on minority shareholder rights and the right to require audited accounts, or to speak to one of our commercial solicitors, please contact us via e-mail or by phone on 0207 611 4817.
